Opportunity: When the Going Gets Tough, the Tough Get Going

While some brands react in a rather traditional approach of competing on prices, other brands are successfully turning the economic downturn into opportunities by focusing on providing additional value and creating long-lasting differentiators.

Let’s get the first approach out of the way. Unless you’re sitting on inventory that is not moving, is about to expire, or had gone out of fashion, discounting products will increase your sales in the short-term but will harm your brand in the end. And if you do this long enough, your customers will—sooner than later—no longer be willing to buy at regular prices and will instead wait for the next sale. So if your initial instinct is to slash prices, hold back and give it another thought. There must be better ways to increase those sales. For one, if you must get rid of inventory, consider selling “two for the price of one” instead of discounting everything at 50 percent. For one, you’ll generate more cash and move out double the inventory albeit for a much lower profit.

Now let’s focus on the approach that’s more effective in the long run: Creating and building a long lasting differentiator for your brand. Consumers nowadays are becoming increasingly smart with their money and expect more and more value for their money. Hence, the concept of “expensive” or “cheap” becomes relative. For example, a JD 100 item could be perceived “reasonable,” while a similar item for JD 75 could be perceived as “expensive.” It all depends on the value of the product as perceived by the consumer.

Some of the brand differentiators you could focus on include quality of post-sale service, warranty, exchange policies, etc. Many consumers today look at “cost of ownership” versus the “purchase price,” which means you can sell at a higher price provided you add attractive benefits. A specific example would be the automotive industry. Yes, people still haggle over the price, but they are also asking about the number of free maintenances included in the package, and for how many years or kilometers the warranty covers the vehicle. If the first few maintenances are included for free, and the warranty covers five years with unlimited mileage, the consumer is willing to pay more because they realize the savings in the long-run exceed those accrued over a vehicle that costs less, but is covered for two years only, with a limited mileage and no free maintenance.

Other brands adopt a “bundling” strategy to increase the value of their core offering. Mobile operators are a good example. If you commit to a plan for one or two years, you can get a high-end handset at a highly reduced price or even for free. Consumers typically tend to look less at how much they end up paying each month in fees and focus on the value added services and products they will be enjoying as a result of their brand loyalty. The operator is not really discounting the handset all that much, as the business relationship is now guaranteed to last one or two years, during which the investment is recuperated and more.

Banks on the other hand are increasingly focusing on specific market segments, offering more and more customized value-added services. For many individuals and SMEs, “how” the bank deals with its customers is more important than interest rates on borrowing and lending. Am I getting a 2 percent or 1.87 percent monthly interest rate on my credit card? Am I getting 2.5 percent or 2.75 percent on my deposit? Competing on price, i.e. interest rates, is not really much of a concern here. What really makes a difference though is whether my bank will actually give my small business a credit in the first place without having to put up my house as collateral. Will I be able to buy a car with a minimal down payment and a five-year installment plan without mortgaging my parent’s house? It’s all about ease of doing business, facilitation, and access. The focus is on value, not price.

Resist the temptation of slashing prices to meet your quarterly quota. Focus on long-term profitability by taking advantage of the opportunity to create that invaluable differentiator, which will distinguish your brand from the pack.